EXCLUSIVE: “Taking a different route” – Simon Lynch, Cymonz; Abhish Saha, Sandstone Technology and Simon Eacott, NatWest in ‘The Fintech Magazine’
As competition hots up in cross-border payments and the correspondent banking network hits back, we ask three players from different sides of the tracks, how the explosion of new services will play out for customers
The cross-border payments and remittance marketplace has become increasingly crowded over time and that means that customers have a lot more options – in terms of both speed and costs – than they did 10 years ago. As a result, the sluggish correspondent banking system has had to up its game in response to alternative payment service providers using different routes to speed up payments. One obvious example of this is Swift’s introduction of gpi for high-value international transfers through the correspondent banking network. There is also the now-mandatory adoption (since November this year) of the ISO 20022 messaging standard by the 11,000 members of Swift’s global banking community, which ensures additional information is attached to each payment. This will, in theory, reduce the number of exceptions, lower cost and give more transparency to the customer.
Meanwhile, making cross-border payments faster, cheaper, more accessible and more reliable has also made the political agenda. The G20, for example, wants to see the cost of cross-border retail payments come down to less than three per cent of a transfer’s value. According to the World Bank, the global average cost for sending remittances is currently 6.4 per cent of transfer value, which is particularly painful for migrant workers, many of whom are already in the low income bracket. Consultants at EY estimate that total global cross-border payment flows will reach $156trillion this year, of which $150trillion is forecast to come from B2B transactions – again, it’s the least powerful in that group, the small businesses that are trying to grow through overseas markets using e-commerce, that are the hardest hit by cost and delay. So, how is this sector going to evolve further and will the most deserving benefit?
Fintechs have so far driven much of the innovation, broadening choice and lowering fees. But now incumbent banks are beginning to push back – often by partnering with those very same fintechs.
We spoke to Simon Lynch, founder and CEO of international payments software company Cymonz; Abhish Saha, CEO of digital banking solutions firm Sandstone Technology; and Simon Eacott, head of payments at NatWest, to discuss what’s next.
THE FINTECH MAGAZINE: Can you give a broad brushstroke of how international payments have evolved in recent years and what’s influencing change in the industry?
SIMON LYNCH (CYMONZ): There are a lot of different networks out there now for consumers to make international payments through and, for the end user, it’s beginning to feel a lot more like making a domestic payment. It used to be just Swift, which could be slow when the transaction was hopping through many banks, and it wouldn’t have the predictability in terms of how much the end beneficiary was going to receive. Now, consumers can self-serve online, they can do it 24-hours-a-day, seven-days-a-week. We talk about banks and fintechs offering this service online, but a lot of marketplaces are also embedding those payment rails into their platforms.
SIMON EACOTT (NATWEST): Using the correspondent banking network could take a long time. It’s very complex with varied routing, different regulations across the jurisdictions; data wasn’t flowing, there was legacy technology and time zone challenges, all the things we know and love! And that did lead to – and continues to, to a degree – higher cost, more complexity, low transparency and a little bit of uncertainty. For customers, that has meant reconciliation issues, trying to find where their payments were. But huge strides have been made, through changing technology or the growth of real-time systems, and there’s more interoperability now across different payment systems. Swift has made great strides in improving transparency and service levels, but it’s undoubtedly a complex area that has caused pain points. It’s the real explosion of technology, of new user experiences – through a combination of banks and fintechs – that has made significant improvements.
“A lot of these providers offer really good services and have brought down costs. I’m seeing the banks react to that”
TFM: We’ve mentioned Swift a number of times already. It’s the big beast in international payments and continues to dominate the ecosystem. Is there enough room for alternative payment rails?
ABHISH SAHA (Sandstone Technology): I think there’s always room for more players and more competition. Having worked with financial institutions in Africa, it’s always interesting how little bits of innovation can create something in one country and then, all of a sudden, it impacts the neighbouring countries in a positive way, in terms of being able to move money. You’re right that Swift has been a dominant player in the space for many years and continues to grow its capability set. The likes of Visa and Mastercard have always been in the game, in some shape or form, and while I wouldn’t say they’re new competitors, they’re evolving competitors in that space. My experience of working with corporates – particularly with businesses around supplier payments across borders – is that the cost side of transfers is certainly something that leaves them door open for others to be able to come in and compete. There’s a definitely a business case there. SL: We’re seeing more and more available payment networks across the board.
Visa has launched its B2B Connect product, which is tokenised on the blockchain, essentially as a competitor in the market. It’s also purchased companies like Earthport, which has really good local clearing ability. Visa has a huge network of banks that it’s already connected to and is having more conversations in that space. I think we’ll continue to see that. At the smaller end, Cymonz has a customer in South Africa which uses our platform for foreign workers sending money home throughout Africa. One of the pain points there is money going into Zimbabwe, so we’re right now building out our own payout network, in conjunction with partners in that country. Ripple is an interesting use case. I think we’ll continue to see a lot around stablecoins, etc. Whether we’re going to need them is, I think, still up for debate, when players like Swift and Visa are moving to more real-time payments. That said, I think we’re still going to see a lot of experimentation in that area, to see how we might be able to move money using stablecoins.
TFM: Why has the cross-border payments industry taken so long to evolve?
SE: Payments generally, as a network operation, are always going to be complicated. They need to be safe, resilient and reliable every time and those requirements are magnified when you go cross-border, because you’re going across jurisdictions and you’ve got different regulations, time zones, and liquidity and credit challenges. Plus, you need to make sure that you are absolutely robust in terms of financial crime. All these things add to the complexity and the value chain is huge, with many different connections. So, the competition piece, and the way it develops, is partly about the rails in terms of infrastructure. That’s where the resiliency needs to come in and why the likes of Swift are so important, networking 11,000-odd banks. Technology and new ways of doing things will help drive some of that innovation. It’s about pulling all those things together, looking at customer pain points, frankly, and that’s where some of the competition comes in, in terms of some of the overlay services.
TFM: With ISO 20022, banks in Australia are looking at attaching invoices to payments off the back of that enhanced experience. Are we going to see NatWest customers demanding similar services?
“It’s the reach of the solution that really makes a big difference, especially when you’re looking at frequent users”
SE: Yes I think so, although they probably won’t refer to it in that way, it’s about embedding the payment in the customer’s business and standardisation of the data will undoubtedly help that. ISO 20022 standardises payment messages, so that we get a lot more straight-through processing, a lot more speed and transparency. The ability to do more with the payment is all about what is contained in Ge the message In the UK, we’re doing the same thing with the New Payments Architecture, which will enable not just fast and instant payments, but much richer data. It will enable more services to be developed by the whole ecosystem. So, it is about more than just the underlying transfer of value; it’s what you do with that and how you embed that in the customer experience.
TFM: What will the reaction be now that we have this ecosystem where payments can be done by a non-financial institution, not just a bank?
SL: We’ve already seen some customers moving away from banks, and banks becoming maybe a little bit concerned about that. A lot of these other providers offer really good services and have brought down costs. I’m seeing the banks react to that and, on the technology side, start to offer that capability out to their business customers, to keep them inside that bank ecosystem when they do international payments. Because I still believe that, as a customer, generally I want to do my banking with a bank, and international payments is a key part of that experience. And don’t forget that when I transact away from the bank, I’m adding another hop, as well, for me – I need to get the money from my bank account to the provider I’m using.
TFM: Do you think payments businesses are eating up market share directly from the incumbents, or is the market share increasing and, as a result, there’s far more room for growth?
AS: In terms of the competition, I think there are just so many different segments you can go for; the use cases and the requirements are quite different. One example is banking through the one portal, and then being able to do other things within that portal, particularly from a business perspective, because your staff are already in there, your users are in there – if you start jumping around, it becomes quite a friction-full experience. So, it’s the reach of the solution that really makes a big difference, especially when you’re looking at frequent users – and they are the ones that are really impacted by the extra hop, because it affects their bottom line, too. You begin to ask questions like ‘how well managed are the spot rates?’ because, particularly around supplier payments, some of the tickets are quite large and that begs the question ‘do you have control of that as a business user?’. And, then, ‘can I log in, pay all my suppliers, across the regions that I’m working in, or are payment corridors limited?’, because many providers operate a limited network. That’s another productivity factor.
TFM: How can tech companies and institutions work together, right now, for the customer’s benefit?
“You’ve got to look at the entire customer journey, see where your own strengths are – the parts you play as a bank – and the value other partners can brings”
SL: I think the real opportunity for banks is to find the right technology fit for them; something they can easily integrate. Cymonz is a technology provider, so we reckon there’s a really big opportunity for banks to be able to find technology that’s off the shelf, so they don’t have to build it themselves, which is easy to integrate with their systems. I think there’s a big opportunity there with ISO formats and standardising data, as it means you can start to connect to other payment rails. There’s also an opportunity for the smaller banks to really partner up with some of the fintechs that are already out there and established. However, I think it gets to a point where it’s the bank’s brand but they’re potentially giving away their customers to someone else. So we do see a pushback there in the market.
SE: Banking, and particularly payments, are incredibly complex and the ecosystem is very extensive, so you need to work with partners. Whether it’s collaboration or partnership – or, at times, competition – you need to know which hat you’re wearing at any one time. At NatWest, we work with a number of partners, including embedding other propositions into our own customer journeys. Indeed, we’ve recently announced a partnership with a company called Vodeno around embedded finance, where we’re looking to be able to offer more banking-as-a-service/payments-as-a-service. For banks and businesses, it’s about being where your customers are, being on the platforms they’re on, and making the payment at the back end of it almost incidental. You’ve got to look at the entirety of the customer experience, the customer journey, and see where your own strengths are, the parts we play, as a bank – whether that’s trust, settlement, lending, or whatever – and the value other partners can bring.
AS: I think it’s among the smaller banks that partnerships are really key. Even if you’re using a common set of rails, you need people to manage that and reconcile of any issues that happen. Operationally, there are a lot of moving parts and then fraud and monitoring on top. You need staff that are well qualified and experienced in that space and, if you try to in-house all of that, you’re starting to build out a whole department, if not multiple departments. So, from a smaller bank perspective, the partnership ecosystem can provide you with the front end that manages all the nuances around an international payment for a user moving their money, help with the network and monitoring.
There are quite a few opportunities there to go best-in-class by not trying to build everything themselves, which really eats into a lot of the business case. I guess the other upside is your time to market. With the right partnerships, you should get there quicker!
This article was published in The Fintech Magazine Issue 26, Page 26-27
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